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Greece’s use of
collective action clauses forcing investors to take losses under the
nation’s debt restructuring will trigger payouts on $3 billion of
default insurance, the International Swaps & Derivatives Association
said.

A total 4,323 credit-default swap contracts can now be settled after
ISDA’s determinations committee ruled the use of CACs is a
restructuring credit event. Before the ruling, Greek swaps rose to a record
$7.68 million in advance and $100,000 annually to insure $10 million of debt
for five years.

The decision was unanimous, New York-based ISDA said today in a statement
distributed by Business Wire. An auction to set the size of the payouts will
be held on March 19.

Auctions will set a recovery value on the bonds and swaps sellers will pay
buyers the difference between that and the face value of the debt.

Billions of dollars
are to be paid out in insurance-like instruments as Greece on Friday pressed
ahead with the largest ever sovereign debt restructuring.

However, there was a long delay over the decision by the ISDA determinations
committee, which is made up of 15 global banks and investment funds, that annoyed some investors.

Uncertainty still hangs over the CDS market as an auction process to decide
the amount of pay-outs may not take place for another week.

Bill Gross, who runs the world’s biggest private bond fund at Pimco, warned that CDS had been undermined by the saga.
“The rules have been changed here,” he said in a radio interview.
“The sanctity of their contracts is certainly lessened.”

Wolfgang Schäuble, the German finance
minister, said: “Greece has today been given the chance to make it. But
Greece will now have to seize this chance itself.”

In a stern message to Athens, Olli Rehn,
Europe’s economics commissioner, called the second bailout “a
unique opportunity not to be missed” and said: “I now expect the
Greek authorities to maintain their strong commitment to the economic
adjustment programme and to rigorously and timely
implement the policy package.”

Greece’s lenders are mounting an unprecedented surveillance campaign to
try to guarantee the government’s commitment. At least four officials
from the commission’s economics department will now be stationed in
Athens full time – along with representatives from the International
Monetary Fund and the European Central Bank – to vet government
policies.

Eurozone Exit Trigger Is Cocked

Greece will exit the eurozone. However, the timing
is still in question.

I suggest Greek politicians will not meet increasing conditions placed on
Greece by Germany and that later this month funding will be cut off
triggering a Greek return to the drachma.

If so, look for enough funds to be dispersed to Greece in the next couple
weeks that allow a quick round-trip to the ECB to make the ECB whole. Once
the ECB is in a no-loss situation, the roof can easily cave in.

The exit trigger is cocked. All it takes is for either Greece or Germany to
pull it.